Sweden’s inflation rate reached double digits for the first time in more than three decades in December, as price increases show little sign of abating despite the central bank’s efforts.
(Bloomberg) — Sweden’s inflation rate reached double digits for the first time in more than three decades in December, as price increases show little sign of abating despite the central bank’s efforts.
The CPIF measure of inflation that’s tracked by the Riksbank rose by 10.2% from a year earlier, according to Statistics Sweden. That’s more than the 9.8% expected by economists, while the Riksbank had forecast a rate of 9.1%.
The data is locking in bets that the central bank will raise its key interest rate by half a percentage point next month. A 50 basis-point hike now seems to be a “done deal,” said Knut Hallberg, a senior economist at Swedbank AB. The risk of an additional quarter-point hike in April has increased, he added.
While inflation is cooling in the US as well as in the euro area, Sweden is still seeing price increases pick up pace, reaching the highest level since 1991. In neighboring Finland, the December inflation reading came in at a 39-year high of 9.1% on Friday. Denmark may already have seen a peak in prices, and Norway’s inflation slowed to the weakest pace in seven months at the end of last year.
Friday’s reading was the last before the Riksbank’s next rate decision, which is set to be announced on Feb. 9. That will also be the first monetary-policy decision under governor Erik Thedeen, who succeeded Stefan Ingves at the beginning of this year.
The Swedish central bank is betting that inflation will peak in the coming months, before starting a gradual decline toward its 2% target. To reach that aim, the Riksbank has raised its key interest rate to 2.5% from zero since April last year.
The rate hikes have contributed to the most severe housing market slump since the early 1990s and fueled expectations that economic output will shrink this year as consumers reduce discretionary spending to pay for higher mortgage rates and power bills.
What Bloomberg Economics Says…
Sweden’s December inflation surprised to the upside, but it’s more the uptick in core inflation that will add to the Riksbank’s concerns for the outlook. This, coupled with inflationary pressures from wage and price gains, tilts the scales in favor of a 50 basis-point hike at the central bank’s February meeting — the first of the year.
— Selva Bahar Baziki, economist
For the full note, click here
In mid-December, Swedish electricity prices approached record levels, before retreating toward the end of the month. Power costs explained a large part of the CPIF uptick last month, though food prices were the main driver, and a range of other goods and services also rose markedly.
An underlying inflation measure that strips out energy costs rose 8.4% in the final month of the year, more than the 8.3% projected by economists and the central bank.
“The fact that inflation excluding energy prices again surprises on the upside of the Riksbank’s forecasts gives the overall impression that little progress to curb inflation has been achieved so far,” said Johan Lof, senior economist at Svenska Handelsbanken AB.
–With assistance from Harumi Ichikura and Joel Rinneby.
(Adds other Nordic countries in fourth paragraph, further comment in final paragraph.)
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